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Scrutiny for Chinese Telecom Bid

SHANGHAI — Warning about a potential threat to national security, eight Republican lawmakers have asked the Obama administration to scrutinize a bid by one of the biggest corporations in China to supply telecommunications equipment to Sprint Nextel in the United States.

In a letter sent last week to top administration officials, including Treasury Secretary Timothy F. Geithner and the director of national intelligence, Lt. Gen. James R. Clapper Jr., the senators expressed concern over claims that the company had sold equipment to the regime of Saddam Hussein and had a close business relationship with the Islamic Revolutionary Guard in Iran.

The senators also said the company, Huawei Inc., had close ties to the People’s Liberation Army in China.

“Sprint Nextel supplies important equipment to the U.S. military and law enforcement agencies, and it offers a broad array of devices, systems, software and services to the private sector,” wrote the group of senators, including Jon Kyl of Arizona, Christopher S. Bond of Missouri and Susan Collins of Maine. “We are concerned that Huawei’s position as a supplier of Sprint Nextel could create substantial risk for U.S. companies and possibly undermine U.S. national security.”

A campaign to block Huawei’s bid to sell equipment in the United States would almost certainly aggravate American-Chinese trade relations and intensify a longstanding debate over whether big Chinese companies will be allowed to invest in sensitive industries in the United States.

Several Chinese companies, including Huawei, have repeatedly been discouraged or blocked in recent years from doing business with American companies because of national security concerns, decisions that have angered Chinese officials and business leaders.

A Treasury spokeswoman, Natalie Wyeth, said the department had received the letter and was reviewing it. Ms. Wyeth said the government welcomed foreign investment in general, including from China. “Foreign investment creates significant economic benefits for American workers, including millions of well-paying jobs,” she said.

The letter, dated Aug. 18, drew sharp responses from both the Chinese government and Huawei. Wang Baodong, a spokesman for the Chinese Embassy in Washington, issued a statement saying Huawei was a private company that simply wanted to do business in the United States.

“We hope that some people in the U.S. will take a rational approach toward these normal commercial activities rather than do anything to stand in the way by abusing national security concerns,” Mr. Wang said in the statement.

Huawei, which is based in Shenzhen in Southern China, issued its own statement late Friday saying that the Chinese government and military had no control over the company.

Huawei also defended itself against past charges that it had infringed on the intellectual property rights of American companies.

“Huawei is disappointed to learn that old mischaracterizations about the company still linger,” Ross Gan, a company spokesman, said in the statement.

Under American law, an interagency panel called the Committee on Foreign Investments can block foreign companies from acquiring or investing in companies.

In this case, the senators, in their letter, asked the Obama administration and national security agencies to fully investigate Huawei and assess the risks posed by allowing it to sell equipment to Sprint Nextel.

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In raising their concerns, the senators cited media reports; a press release from the Chinese embassy in Iran; a report by the Iraq Survey Group, a committee set up after the fall of Iraq; and several other documents.

The senators wrote that Huawei’s presence in Iran, “especially with military industries, suggests that under U.S. sanctions on Iran, Huawei should be prohibited from doing business with the U.S. government.”

The letter also highlighted the firm’s “reported relationship” with the People’s Liberation Army, citing what it called “China’s well-documented focus on developing cyber warfare capabilities.”

It concluded with a series of questions in which the senators asked whether the Treasury Department was currently negotiating a deal to allow Huawei to acquire or invest in American companies, and whether Huawei’s potential control over a company involved with sensitive government contracts would “present a national security threat for technology leakage or enhanced espionage against the United States.”

A spokesman for Sprint Nextel, one of the largest mobile phone operators in the United States, declined to comment late last week. Efforts to reach several of the senators for elaboration on the letter were unsuccessful.

Although Huawei is not well known in the United States, it is already one of the biggest telecom equipment suppliers worldwide, with major operations in China, Europe and Africa and revenue last year of over $20 billion

The company is now eager to enter the American telecom equipment market. But that move has been slowed by nagging questions about the company’s history — whether it has sold equipment to countries like Iraq and Iran; received financing from the Chinese government; or stolen technology from global companies.

The company was founded in the 1980s by Ren Zhengfei, a former officer in the People’s Liberation Army. Some analysts say the Chinese government has helped Huawei win contracts in Africa and other developing nations and often helped finance government purchases of Huawei equipment.

Cisco Systems sued Huawei in 2003, saying that the company had illegally copied its software and infringed on several patents. The companies settled the case out of court.

Last month, Motorola sued Huawei in the United States, accusing it of plotting to steal trade secrets with the help of a group of former Motorola employees. Huawei insists the case has no merit and said it planned to fight it in court.

Huawei did not say what Sprint Nextel contract it was bidding on. But Huawei has had trouble entering the United States market.

In 2008, Huawei dropped a bid to take over the 3Com Corporation after the federal government began investigating whether the acquisition would pose national security risks. And earlier this year, Huawei lost bids to buy the assets of the software maker 2Wire and Motorola’s wireless equipment unit, according to Bloomberg News. Bloomberg said Huawei lost both bids despite offering more than the winning bidders because the sellers doubted Huawei could win federal approval.

Binyamin Appelbaum contributed reporting from Washington, and John Markoff from San Francisco.

A version of this article appears in print on August 23, 2010, on Page B1 of the New York edition with the headline: Scrutiny For Chinese Telecom Bid. Order Reprints|Today's Paper|Subscribe